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Franklin Templeton May Not Be a Dividend Aristocrat for Much Longer

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Dividend Aristocrats are S&P 500 companies that have increased their dividends in each of the past 25 years.

You’ll see plenty of household names on the list, such as Johnson & Johnson (NYSE: JNJ), Coca-Cola (NYSE: KO), Target (NYSE: TGT), IBM (NYSE: IBM) and more.

But in today’s Safety Net, we’re going to take a look at a company that’s not quite as well known as those heavy hitters – despite its 5.3% dividend yield being one of the highest among Dividend Aristocrats.

The company’s name is Franklin Resources (NYSE: BEN), but it’s better known as Franklin Templeton.

Growing up, I would often see commercials for Franklin Templeton shoved between AARP commercials and Life Alert commercials during episodes of The Price Is Right. But I never really knew what it did.

In short, Franklin Templeton is an investment firm. It takes your money and tries to make you more money.

Traditionally, its focus has been on high net worth individuals and institutional money, but with the recent rise of the retail investor, the company has opened pathways for normal people to put away and grow their money.

We’ve never reviewed Franklin Templeton’s dividend here in Safety Net, so I think it’s high time we crunched some numbers to see how safe this Dividend Aristocrat’s dividend actually is.

The company has increased its dividend payout in each of the past 28 years. That sort of consistency gives it an automatic head start.

But as you know, that’s not nearly enough.

Free cash flow is an important part of our Safety Net criteria because it tells us a great deal about a company’s ability to maintain its dividend payout.

And when we look at Franklin Templeton’s free cash flow for 2023 and its expected free cash flow in 2024, we start to see some red flags.

Free cash flow decreased 47% from $1.9 billion to $989.9 million in 2023, and it’s expected to drop all the way down to -$487 million this year.

Chart: Franklin Templeton's Cash Is Drying Up

The main reason for the negative number is the company’s successful acquisition of Putnam Investments LLC. Franklin Templeton announced the completion of the $925 million deal on January 1 of this year.

With a payout ratio of just 61% last year, the company had ample cash to pay its dividend. But the steep price it paid for Putnam used up all of its free cash flow for 2024 and then some.

Franklin Templeton’s Dividend Aristocrat status is under a lot of pressure this year because of its dire free cash flow situation.

Based on its inaugural Safety Net review, the company gets a “C” for dividend safety.

Dividend Safety Rating: C

Dividend Grade Guide

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